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Proposals to pay doctors' pension tax bills: an update

11 December 2019

Doctors have been promised that their tax bills for higher rate pension relief will be covered by the NHS, in an attempt to encourage them to work overtime shifts. This development follows the refusal by doctors to work overtime because of tax penalties received on their pensions due to the £40,000 annual allowance limit.

Tax-free Allowance Cuts

The tax-free amount that people can put into pensions was reduced for all savers in 2011, when the £255,000 allowance was cut to £50,000 a year, with a further reduction to £40,000 in 2014. This problem originally arose in 2016 when a tapered annual allowance for pension contributions was introduced. Broadly, the changes mean that the £40,000 annual allowance is steadily reduced to a base level of £10,000. This will generally affect those earning more than £110,000; around a third of senior doctors and GPs.

New proposals

The latest proposal for the NHS to pay doctors' pension tax relief would allow doctors to withdraw money from their pensions to pay their tax bills for next year. Then, before the doctor retires, the NHS would top up their pension, meaning the cost of the measure to the health service will be spread out over time, and doctors will not be out of pocket.

It is currently proposed that this measure will only apply to the 2019-20 tax year.

From 1 December 2019, an interim policy gives eligible NHS staff in Scotland the option to have their employer pension contributions paid to them as part of their basic pay (see Changes to protect NHS staff for further details). The measure has not yet been confirmed for the rest of the UK.

If you would like advice or further information on this topic, do not hesitate to get in touch with me at b.howells@uhy-torgersens.com. You can also reach me by phone on 0191 567 8611.

As one of the leading firms of accountants in the North East, with offices in Newcastle, Sunderland and Jarrow, we have the expertise to advise you on a wide range of tax related issues.  If you would like to speak to one of our local experts, please call 0191 567 8611 or e-mail info@uhy-torgersens.com.